Judgment:
1. These are two appeals filed by the assessee for the assessment years 1980-81 and 1981-82 against the orders of the learned CIT(A) regarding imposition of penalty. As the facts are common in both the appeals, hence both the appeals are disposed of by a single consolidated order.
1. The learned CIT (Appeals) was not justified to hold that the appellant submitted inaccurate particulars of income, while accepting that there was no concealment of particulars of income.
2. The learned CIT (Appeals) was not Justified in not adjudicating upon the ground No. 3 which read as under : When the matter of quantum of commission income to be included in the total income of the appellant was pending before the learned ITAT, there was no escapement of income within the meaning of Section 147 of the Income-tax Act, 1961 and proceedings under Section 147 are against the law. Any proceedings taken including the imposition of the impugned penalty of Rs. 1,56,201 in consequence of an illegal notice under Section 147 are against the provisions of law.
3. Penalty proceedings are separate and distinct and the assessee had every right to challenge the legality of the assessment during the penalty proceedings.
4. The learned CIT (Appeals) was not justified to remark that the Explanation to Section 271(1)(c) applied.
5. The learned CIT (Appeals) failed to appreciate that when the entire commission income was shown in the audited P & L A/c and the Balance-sheet, as prepared by the auditors of the company, there was any question of submitting inaccurate particulars of income.
6. The learned CIT (Appeals) had erred in remarking that the question of Amnesty Scheme dose not come into operation since it was the return filed by the assessee under the Amnesty Scheme on the basis of which assessment was made and the penalty has been imposed on the basis of the income so assessed.
7. The order of the learned CIT (Appeals) is erroneous both on law and on facts and the penalty upheld by him deserves to be quashed.
3. Although the grounds have been split up in 7, but the basic issue involved is the imposition of penalty under Section 271(1)(c).
4. The brief facts are that the Assessing Officer had imposed penalty under Section 271(1)(c) for the concealment of the following income :(i) Agency commission which pertained to the Rs. previous year under dispute, which was not 5. As regards the third item, i.e., payment to Shri C.L. Madhok, the learned CIT (A) has held that the penalty cannot be levied on the said amount as the matter is still in liquid stage because the Tribunal has set aside the question back to the file of the Assessing Officer.
6. As regards the second item, i.e., three-fourths of the rent and electricity and water charges of a house at 18, Link Road, New Delhi, the brief facts are that the assessee had taken a flat on rent and claimed the entire expenditure as business expenditure on the ground that the flat was being used for business purposes. During assessment stage, it was found that one of the Directors, Shri A.K. Bhartiya was living in the said flat and the office of the company was situated in another flat taken on rent by the assessee-company. Consequently it was only one-fourth of the expenditure used for business purposes which was allowed and three-fourths was disallowed. It was on the disallowance of this amount that the penalty was imposed. Although the learned CIT(A) has not accepted the contention of the assessee that no penalty was imposable on such a disallowance and had tried to distinguish the decision of Hon'ble Delhi High Court in CIT v. Rita Malhotra [1985] 154 ITR 550 relied upon by the learned counsel for the assessee, but we do not agree with the learned CIT (A) on that score. The Hon'ble Delhi High Court in the abovesaid case had confirmed the finding of the Tribunal that such disallowance could not be said to be a concealment of income and, thus, no penalty was leviable. The facts were more or less the same as are in this case. In that case the assessee had claimed deduction in computing the income from money-lending business in respect of the premises in which he was carrying on money-lending business. She was living in the same premises and so the ITO disallowed the whole amount claimed. The AAC allowed partial deduction and at the same time imposed penalty under Section 271(1)(c) for concealment. The Tribunal cancelled the penalty on the ground that such disallowance did not amount to concealment and it did not attract the provisions of penalty under Section 271(1)(c). Although in the said case it was a question of reference of law, but indirectly suggests that the Hon'ble High Court was not averse to the finding arrived at by the Tribunal. In our opinion, too when the assessee had claimed the entire expenditure to be the part of the office, then holding that part of it was not allowable as if occupied by one of the Directors cannot be said to be concealment. It can at the most be said to be a difference of opinion between the assessee and the Assessing Officer. We, therefore, hold that no penalty on such disallowance was imposable.
7. The only ground which remains is the agency commission. As the fact stand, the assessee had supplied certain material on behalf of its principals to Govt. of India and was to receive certain commission on the said supplies. The assessee was to get 80% of the commission along with the payment of 90 per cent payment of CIF value to the principals against certain documents. The balance 20% was to be released to the assessee only after final inspection and receipts certificate of the ultimate consignee. Copy of the agreed tender has been filed with the compilation forms 1 to 13 and the alleged condition is at page 4 of the said schedule. Consequently, the assessee had shown 80% of the commission as income during the year and 20% of the commission in the suspense account in the balance-sheet. The Assessing Officer on the basis of the mercantile system added the said 20% amount of commission as income during the year. The said amount was deleted in appeal filed by the assessee.
8. The department went in appeal. During that period Amnesty Scheme was introduced by the Government and the assessee to buy peace filed a revised return and the department after issuing the formal notice under Section 147 regularised the revised return and the assessee also deposited the tax on this additional income comprising of 20% of the commission. The appeal filed by the department was consequently withdrawn as having become in fructuous. The Assessing Officer initiated penalty proceedings and imposed penalty in the case. The said penalty was also confirmed by the learned CIT (A) in the first appeal filed by the assessee. The assessee being aggrieved, has come up in appeal before the Tribunal.
9. The learned counsel for the assessee has very vehemently argued out that the circumstances of the case did not attract the penalty provisions. The mere submission of the revised return by the assessee to purchase peace under Amnesty Scheme did not amount to concession by the assessee that there was any concealment of income or filing of inaccurate particulars by the assessee. He has pointed out that in view of the express condition in the agreement 20% of the commission did not accrue to the assessee during the year and the said contention was even accepted by the learned CIT(A) in an appeal filed by the assessee. He has also relied for the said contention on various decisions of the Hon'ble Supreme Court and other High Courts in CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC), Janatha Contract Co. v. CIT [1976] 105 ITR 627 (Ker.), CIT v. Chanchani Bros. (Contractors) (P.) Ltd. [1986] 161 ITR 418 (Pat.) and CIT v Simplex Concrete Piles (India) (P.) Ltd. [1989] 179 ITR 81 (Cal.). He has, thus, stressed that, in fact, the said income had not accrued to the assessee during the year. Hence there was neither any concealment of income and nor filing of inaccurate particulars which could attract the penal provisions of Section 271(1)(c).
10. On the other hand, the learned D.R. has very vehemently opposed the said arguments and stressed that the very filing of revised return by the assessee and thereby depositing the tax on the alleged income of 20% commission amounted to conceding the fact that the assessee had either concealed the income or filed inaccurate particulars. He has relied for the proposition on the decision of the Hon'ble Allahabad High Court in the case of CIT v. M. Habibullah [1982] 136 ITR 716 and of Hon'ble Kerala High Court in the case of CIT v. Gates Foam & Rubber Co. [1973] 91 ITR 467.
11. We have heard the parties at length and have also carefully perused the entire facts on record. The learned CIT (A) has confirmed the penalty on the ground that although there was no concealment of income, as the assessee had shown the alleged income in return and also reflected in the balance-sheet, but it was a case of filing of inaccurate particulars. To arrive at the said conclusion, the learned CIT (A) has relied on the contradictory statement made by the assessee before the Assessing Officer on different dates. A little scrutiny of the facts will show that the said conclusion cannot be allowed to sustain. In fact, the facts of the case eloquently establish that the alleged income had not accrued to the assessee during the year. The mere submitting of the revised return under the Amnesty Scheme can by no stretch of imagination be said to be a concession of the assessee for either concealing the income or for filing inaccurate particulars.
To file a revised return in Amnesty Scheme may be for 101 reasons to purchase peace with the department, but it cannot lead to conclusion against the assessee. The Hon'ble Supreme Court in the case of A.Gajapathy Naidu (supra) had held that when an 1TO proceeds to include a particular income in the assessment, he has to satisfy himself on two questions as to what is the system of accountancy adopted by the assessee and when the right to receive the income" has accrued to the assessee. It was further held that no power is conferred on the Income-tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year, on the ground that income arose out of an earlier transaction. The said decision of the Hon'ble Supreme Court had been followed successively by different High Courts. The Hon'ble Kerala High Court in the case of Janatha Contract Co. (supra) had held that if money had become due during the accounting period it would be income which would have to be taken into account in determining the total income of the assessee. The question whether the money had become due or whether income had accrued would depend upon the terms of the contract. Here in this case, the terms of the contract clearly provided that 20% of the commission will be paid subsequently on the final inspection which means that the alleged amount did not accrue to the assessee in the year in question.
12. Like-wise, the Hon'ble Patna High Court in the case of Chanchani Bros. (Contractors) (P.) Ltd. (supra) had held that certain amounts which had been withheld by the Irrigation Department pending verification of the satisfactory conclusion of the work pertaining to the said amount, the said amount could not be included in the income of the assessee for the year in which the amount was not paid.
13. The Hon'ble Calcutta High Court too in the case of Simplex Concrete Piles (India) (P.) Ltd. (supra) had held that having regard to the terms and conditions of the contract, it could not be held that either 10% or 5%, as the case may be, being retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfilled the obligation under the contract, the retention money would be released and the assessee would acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose and accordingly it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of the bills. The assessee had no right to claim any part of the retention money till the verification of the satisfactory execution of the contract. The order of the Tribunal was upheld by the Hon'ble Court.
14. Taking into consideration the above decisions of the Hon'ble Supreme Court and of various other High Courts, we are of the opinion that by no stretch of imagination the alleged income, i.e., of 20% commission could be said to be the income accrued during the year and it could not be said that the assessee had either concealed the said income or filed inaccurate particulars. The finding to the contrary by the learned CIT (A), in our opinion, is not sustainable.
15. The learned counsel for the assessee has also taken an alternative plea which too, in our opinion, has force. The Assessing Officer had concluded that the assessee had concealed the income and thereby imposed the penalty. The Assessing Officer had observed as under : It is thus clear that the assessee-company has concealed the particulars of its income to the following :(i) Agency commission Rs. 1,58,137(ii) Payment to Shri C.L. Madhok Rs. 12,500(iii) Rent of premises at Rs. 52,908 18, Link Road, New 16. The learned CIT (A) had held in para 4 of his order at page 3 that no charge of concealment of particulars is made out. He has held as under : I agree with the learned Authorised Representative that a charge of concealment of particulars of income cannot be levied. However, it is a case not; of concealing particulars of income but of filing inaccurate particulars of income....
17. Consequently he had confirmed the penalty on the ground that the assessee had filed inaccurate particulars of income. The learned counsel for the assessee has stressed that the law did not permit the learned CIT(A) to change the alleged footing on the basis of which the penalty had been imposed. For that he has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Lakhdhir Lalji [1972] 85 ITR 77. In the said decision, the Hon'ble Gujarat High Court had held as under : Held, that the penalty proceedings had been committed against the assessee on a particular footing, viz., concealment of particulars of income, but the final conclusion for levying the penalty was based on a different footing altogether, i.e., on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given a reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the Income-tax Officer disappeared when the Appellate Assistant Commissioner held that there was no suppression of income by the assessee. The conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty under Section 271 (1)(c) for concealment of income was correct.
18. We have perused the said decision and we are of the opinion that it applies on all fours to the present case. We therefore hold that the arguments advanced by the learned counsel for the assessee have every force. We, therefore, hold hat even on this count too the penalty imposed cannot be sustained. We accordingly delete the penalty imposed.
20. to 22. [These paras are not reproduced here as they involve minor issues.]